5. TEACHING PROCESS
The instructor might follow the following steps:
The class could begin with an assessment of the strategic position of BGD. This should be discussed in relation to its external environment and its internal strengths and weaknesses. Or this discussion might follow a discussion of the nature of the strategy as a way of assessing its future viability.
Students might then discuss the strategy of BGD, especially its international strategy. (The domestic strategy is not described sufficiently in the case for close analysis; the favourable development on the domestic market is due mainly to developments in the market for soft drinks.) This is especially useful to generate a discussion on the nature of focused differentiation strategies.
Students may then discuss the implementation of strategy, which will include choice of partners, channels of distribution, investment in advertising, etc. It may also involve the internal organisation (separation of brewing and marketing, staffing with ‘non-brewing professionals’ in the sales organisation, present vulnerability and plans for future staffing etc).
This discussion could move on to the sustainability of a strategy of international expansion.
Finally, the students might discuss whether changes in strategy might be proposed. Possible ideas may be the introduction of more brands (perhaps some locally produced), concentration around fewer markets, how to handle the upcoming need for more production capacity (perhaps solved by acquiring other small Danish breweries).
There is a video de-brief of BGD available. This comprises an interview with Claus Nielsen that covers:
His views on the reasons for success of the strategy
Insights into problems in implementing it
Developments in BGD
The video can be used to compare student views with those of Claus Nielsen.
The addendum to the case can then be used to consider what happened and what further issues this raises.
6. CASE ANALYSIS
6.1 The strategic position of BGD
The strengths of BGD include:
A distinctive position in its market and the knowledge of how to maintain such a position
A strong position in relation to exported Danish beer (building on the reputation of Danish beer) and to ‘ethnic’ beer (especially malt beer)
A small, flexible sales organisation
Its partnership relationship with agents, with BGD as sole supplier of beers, and thus the absence of internal brand competition in the distribution channel
A division of work between ‘professional’ brewers in production and ‘professional internationalists’ in sales, with an emphasis on maintaining high quality in both arenas.
The weaknesses might be:
Small production capacity
Modest financial capital
Vulnerability due to rapid expansion (e.g. can the sales organisation keep pace with growth?)
Students may see Claus Nielsen as critical to the success of this firm. If they have seen the video they will know that he travelled upward of 200 days a year ensuring the success of the company’s strategy.
They may argue that his personal perseverance and skills in setting up the network of agents and ensuring the management structure to deal with it are essential to the success of this firm. This then raises the question as to whether this is a strength or a weakness from the company’s point of view.
Arguably it has served them well historically, but more perceptive students may raise the following questions:
What if Claus Nielsen were to leave? Would that jeopardise the strategy? Of course the addendum to the case makes it clear that he did, indeed, depart, and it did not result in the demise of the company’s fortunes; though it does appear that it had the effect of changing the strategy somewhat.
Have the aspirations of Claus Nielsen led to undue risks in the pursuit of the strategy? Students may argue that the move into Russia is a ‘move too far’, potentially ‘betting the company’ on high volumes at enormous risk.
The strengths and weaknesses might be related to market trends such as growing income levels, growing interest of beer consumption in some markets while declining in others, growing emphasis on premium and strong beers, emphasis on brand image, international over-capacity in production. It might also be interesting to question whether the dominant position of Carlsberg in Denmark provides a spur to the success international strategy of BGD; arguably it has forced the company to take an international dimension to its strategy.
6.2 The BGD strategy
BGD is a good example of focused differentiation on an international scale. Management has recognised that it cannot hope to compete locally with Carlsberg; nor can it compete on a global scale with major beer producers. It has therefore opted for a strategy that requires the careful identification of geographical segments in the beer market particularly suited to its own offering (i.e. high-quality branded Danish beer). The important point to note, however, is that none of these markets is identical. The market in Russia is different from China, which in turn is different from Brazil and the Baltic States and so on. Focused differentiation does not mean offering exactly the same product or service to each segment, but rather ensuring that the product or service offering is tailored to the particular needs of that segment.
In this sense the core competences underpinning the BGD strategy are much more to do with the know-how and experience that have been built up in delivering this strategy than in product or technology.
A useful question to ask students is the extent to which they believe other brewing companies could have readily followed the same path (i.e. imitated) BGD.
The BGD case therefore also relates to the issue of market segmentation. In assessing a market segment the crucial question is not only how big the segment is, but also how distinctively it may be exploited so that it is differentiated from other segments, and how interesting the segment may be to other breweries.
Imported Danish beer is also an important component of the strategy. Instead of just offering one more taste in the beer market the emphasis on imported beer opens up developments paralleling those within the wine market. There the prices range from the lowest level to prices 10 times as high, which require a guarantee of ‘origine controllé’ and a selective system for distribution. BGD is attempting to obtain a price premium, but beer is subject to fiercer local competition than is the case of wine, and so far the differences in beer taste are not recognised as much as differences in wine taste. Furthermore, local production enjoys considerable savings on transportation. On the other hand, the high prices of imported beer and the modest demand are exactly the major elements that make such market segments uninteresting to the multinational breweries but manageable for BGD. The big breweries want volume, and will embark on local production and mass advertising. To preserve the distinction BGD emphasises sales and promotion in better bars and restaurants.
6.3 Strategy implementation and the winning formula
Evidently BGD has achieved a good deal of success with its strategy. A useful approach in considering why is to ask students to relate the content of the strategy to the way in which BGD is implementing it.
Focused differentiation arguably requires a quite different approach to managing the business than would, for example, broader-based differentiation. The winning formula seems to be built on:
The focused differentiation approach discussed above
A concentration on the segments at the top end of most markets (though note own label beers and malt beer are exceptions)
Considerable attention given to the identification of such market segments not only by Claus Nielsen at the centre but also in partnership with local agents and management
The careful choice of partners so that BGD’s products are dominant in their portfolio and not competing with other beers.
The use of indigenous agents as channels of distribution
The insistence on branding and point-of-sale advertising to underpin the brand
Sales organisation such that local managers are held responsible for local operations, but Claus Nielsen and the head office sales organisation retain an overarching brief for the international strategy
The considerable personal dedication and time of Claus Nielsen to coordinating this strategy
The separation of the technical aspects of brewing from the sales and marketing activity internationally;
The determination and persistence to find ways of affecting an approach to succeeding in given markets (e.g. Brazil, China and, at least initially, Russia).
6.4 Capability to continue international expansion
This question can be addressed in two ways.
First, in the context of the first case study, the question could be asked as to whether the strategy being followed by Claus Nielsen could be continued in its present form. In other words could more and more niche markets be opened? The video discussion with Claus Nielsen suggests that he, himself, feels that this is not possible. The company infrastructure simply would not stand a situation where more and more agents were being managed on the basis of imported beers. The coordination problem between Denmark and outlying agents would simply become too complex – let alone his own time travelling rounds the world. The result would need to be a more formalised structure with layers of management and less personal influence by Nielsen himself.
Had the Russian market taken off, then it would almost certainly have raised a problem of capacity too in Denmark. However, even without such required capacity the question might be raised as to whether the insistence on Danish home-produced beer as a basis of the strategy is sacrosanct. This could provoke an interesting debate in the class. Some will argue that it is the cornerstone of the strategy; others might argue that it would make more sense (particularly in large markets) to produce within the market, especially where the beer is not being sold at a premium price (as in the UK).
Can the sales and management organisation of BGD sustain the growth that is being followed? The sales organisation has been developed so that each major market has a person responsible for export to that market. Yet it may take some time before these employees really can relieve the international sales director of the major responsibility. Is it possible to continue to open up new segments with the same reliance on localised management? How soon will the organisation become victim to the trans-national problem that faces other organisations? And what would happen if Claus Nielsen left BGD as indeed, he did in 1998?
So there can be an interesting debate about how the strategy should be developed based on the first case. A second way of pursuing the same issue is to use the addendum to the case. This shows what happened after the departure of Nielsen. Arguably it represents a period of change, but without a clear direction of future strategy. There is evidence that there is less reliance on home-produced Danish beer; and the beginnings of local production in local markets. But is this a clear change in strategy? The company has also been forced to pull out of Russia. Does this indicate a return to a focus on smaller niche markets?
There appears to be some increasing confusion as to whether the brands are sold as premium beers or as commodity beers. For example, in the UK they were sold largely as own label products (though this appears to have received a set back); in Italy they were sold as premium beers. Is this a defensible position?
The Brewery Group Denmark (Case Study & Video)
This session brings together some of the key issues that have emerged in the discussion about the alternative approaches to the search for sustainable competitive advantage. Applying both the positioning and resource-based approaches can insights to be made into the strategy followed by Brewery Group Denmark and Brasseries Kronenbourg discussed in the previous session.
Outline and assess the strategy followed by the Brewery Group Denmark.
The main strengths of the strategy followed by BGD include:
§ A distinctive position in each of its markets “imported Danish beer” and the know-how to maintain this position;
§ Small, flexible and innovative sales organisation;
§ Partnership relationships with “non competitive” agents to act as sole suppliers of BGD’s beers, so preventing internal brand competition within the distribution chain;
§ Strong position in markets selected;
§ Division of work between “professional” brewers in production and “professional internationalists” in sales, with an emphasis on high quality in both.
Possible weaknesses include:
§ Small production capacity;
§ Modest financial capital;
§ Vulnerability from rapid expansion – can they keep up the pace?
Overall, the strategy relies upon the impression of high quality implicit in the “imported Danish beer” approach, largely sold in smaller, lucrative markets which are less prone to competition from the major suppliers, like Carlsberg.
How has the company chosen to position itself against its competitors?
Both Porter’s generic strategy framework and the strategy clock point to a focused differentiation approach on an international scale.
The success of such a strategy depends upon clear market segmentation that identifies opportunities based less on the size of the market than how it might be exploited differently from other segments. The segments need to be favourable to their own offering and not be subject to the intense competition that can come from the bigger global players.
Most importantly, the strategy is tailored to the requirements of each individual marketplace and its needs, particularly in terms of the channel management and distribution policy. It is in this way that their strategy is different from a broad scope differentiation approach.
It is also useful to use Porter’s later work on positioning to identify some of the ways in which the segments may well be protected:
§ Needs-based positioning – appeal to premium customers interested in the “imported Danish” appeal of the product;
§ Variety-based positioning – a limited product range with the focus upon high quality, premium beers;
§ Access-based positioning – the choice of smaller markets, less attractive to the global players, and the use of non-competitive channels contribute a key dimension of the strategy’s sustainability.
What are the strategic capabilities of the Brewery Group Denmark and to what extent are they unique?
Product quality clearly depends upon the capabilities of the organisation to brew and maintain the distinctive qualities of their premium beers. Note how the story about switching production highlights the importance of physical resources (such as the breweries and their raw materials, including water) and the clearly focused competencies of the brewers contribute to this overall capability.
Similarly, the capability of the organisation to quickly internationalise, exploiting new market opportunities and building partnerships with their channels are critical to their rapid expansion. Note how much of this expertise comes from outside the brewing industry. Note the stress on “possibilities” and “opportunities” in the video.
A critical issue raised by the video is the ability of the organisation to sustain and develop its strategy in the future – an issue of resource gaps and how these can be addressed. Will the strategy need to change to reflect these limitations?
Credit:ivythesis.typepad.com
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